Facing an economic recession can be tough and challenging for anyone, especially recession for small businesses. This can be considered a regular phase of economic cycles, but predicting a recession accurately can be difficult, even for experts. They cannot be certain of when a recession will happen or how critical it might be. While economic downturns can be tough on small businesses, they are also survivable. In fact, it can create a number of opportunities for visionary businesses.
Growing a small business during a recession may appear to be an impossible challenge, but still, there are certain preparations and steps that decision-makers can take to set up their company for immediate and long-term success. So, if a recession strikes your business, don’t get terrified. Here are the preparations and steps that will help your small business thrive even when you are facing these challenging economic conditions.
How to Prepare for a Recession
Build Your Cash Reserves
Case savings are an essential cushion for emergencies like natural disasters, pandemics, and recession. This funding can be utilized for future business growth opportunities. It is recommended by the experts to at least have a minimum of 3-6 months of cash reserves in case of emergencies.
Pay Attention To Your Finances
Business owners need to have accurate and regular financial analysis to make informed decisions. You need to be familiar with your income statement (profit and loss statement), budget, balance sheet, and cash flow statement. These reports will help you to learn more about the financial health of your business and determine the areas of improvement.
Identify Your Business’s Strengths And Weaknesses
Apart from being aware of your company’s financial health, it’s important to identify and address its strengths and flaws. What factors contribute to your success and how can you make more of it? Are there any revenue streams you can enhance or costs you can cut? What challenges are you dealing with, and how can you solve them? If your company is stronger during a recession, it will easily survive and even thrive during a recession.
Tips To Survive a Small Business Recession
Keep Open Communication
Renegotiate your existing contracts with your vendors (contractors, suppliers, and business professionals). To smooth up your cash flow cycle consider requesting an installment payment plan. Building strong relationships with vendors is more important now than ever before.
Communicating with your business partners or employees is also important. During economic downturns, both owners and employees experience similar kinds of stress. Therefore it is important to make your employees understand why you are making such business decisions that may affect them, can lower turnover, and increase employee satisfaction.
Cut Or Reduce Unnecessary Costs
This is an evident one, but it is neither a silver bullet solution nor a long-term answer. However, when situations are tough, you may want to consider the following.
- Reducing your monthly rent and other supplier costs.
- Reduce non-essential technological costs and cut out cheaper utility vendors.
- Collect receivables sooner and delay payments.
- Consider whether poor-performing staff are worth keeping.
- Think about flexible staffing options.
Reduce Inventory Levels
Excess inventory can be costly. Not only you will have the initial expense of purchasing huge amounts of inventory but you may also be required to pay to keep or maintain that inventory.To avoid getting stuck with excess inventory that could be tough to sell or to prevent cash crunch you need to give up large bulk purchasing. It is important to balance the cost savings of large orders with your realistic sales numbers (and related costs such as storage or transportation).
Develop A Collections Plan For Invoices
It is essential to develop a plan for collecting receivables, for companies that permit their clients who make credit purchases. For customers who make payments up-front or are early can be considered to provide small discounts. Consider needing an initial down payment for larger payments that cover the majority of the service or production cost.
Focus On Your Best Sources Of Revenue
If children’s haircuts are your primary source of revenue, focus on them even more. Allocate more of your marketing budget to that revenue stream, and consider eliminating items or services that are expensive, need special equipment or packaging, and have low-profit margins. You can also consider small business revenue diversification in LA for growth opportunities. Focus on the revenue streams with the highest profit margins and potential for growth opportunities. Recessions are an excellent moment for you to transform your business and focus more on what makes it successful.